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Greater Tokyo’s industrial vacancy rate declines 0.3 points to 4%

In Greater Tokyo, despite the recent large quantity of new supply, three projects in Q4 were all completed with high occupancy; the vacancy rate declined from 4.3% to 4.0%

Greater Tokyo’s annual net absorption in 2013 sets a record at 217,000 tsubo

In the Greater Osaka region, Goodman Sakai was fully leased upon completion; large inland development announced

The vacancy rate in the Greater Tokyo area declined by 0.3 points quarter-on-quarter (q-o-q) to 4.0%. The three large multi-tenant facilities completed in the fourth quarter attracted sizable demand, as they were located in more affordable locations which were attractive to 3PL companies, and all achieved high occupancy. Facilities completed in the third quarter also continued to find tenants, contributing to the fall in the vacancy rate. Consequently, net absorption for the year was 217,000 tsubo, the highest figure recorded since a metric for large multitenant facilities was introduced in 2004.

However, even in the Greater Tokyo market, which is seeing record demand, the level of demand is not necessarily translating into an overall rise in rents. As 3PL companies have kept costs as low as possible to win contracts from shippers, they are reluctant to pay higher rental rates. There are plans to develop more warehouse facilities beyond the Ken-O Expressway, and tenants prioritizing affordable rents are expected to seek out these facilities.

That being said, due to the lack of available space in more traditional industrial areas closer to the city, tenants requiring more centralized locations are likely to consider more expensive options closer to Tokyo Bay. Landlords in these locations are becoming increasingly confident that they will be able to increase their rents.

The 126,000 tsubo of supply coming online in the first quarter of 2014 will be the largest ever. Nevertheless, the vacancy rate in the first quarter is likely to be around 7%, which is lower than our previous forecast of approximately 9%. This is because facilities completed in the fourth quarter of 2013 as well as those coming online in the first quarter of 2014 have had greater success in securing tenants than expected. Around 60,000 tsubo of net absorption is already expected in the first quarter of 2014, mostly from major supermarkets, convenience stores and food wholesalers.

A major challenge is that rising construction costs and the tight supply of labor in the construction industry mean that a large number of announced projects are having to redesign to reduce development costs. Others are taking longer than expected to secure a construction company. Owners are trying to keep construction costs in line with revenues by using designs that increase the rentable ratio by using a single ramp or truck berths on every other floor. With the rising costs, landlords may see a lower return at a given rental level. It is therefore likely that some projects will be postponed, or their completion date delayed, leading to a slower pace of development.

"Tenants remain cost-conscious, and are considering a variety of factors in addition to rents, such as population density, convenience of public transport, expected wage levels and other factors relating to attracting and retaining staff," said Junichi Taguchi, managing director of CBRE’s Industrial Services team. "As such, although demand is buoyant and construction costs are likely to rise, this is unlikely to be directly reflected in increasing rents until tenants can afford higher rents."

In the Greater Osaka region, the vacancy rate for large multi-tenant logistics facilities is virtually 0%. An example of this is Goodman Sakai, due to be completed in spring 2014, being fully leased five months before completion. Plans have been announced for Prologis Park Ibaraki, a new development project scheduled for completion in 2016. This is expected to spur new demand, as it will be one of the few advanced logistics facilities in the inland Osaka area.

For further details of market trends and forecasts as well as detailed market data by area, please review the Japan Industrial and Logistics MarketView Q4 2013 which is scheduled for release on January 31.

About CBRE Gro​up, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.​